Short-Term vs. Long-Term Disability Insurance

As the New Year approaches, it’s never too soon to start thinking about protecting your personal and financial interests. Just as important as life insurance or an emergency savings account, disability insurance is essential to your personal financial security. Both short-term and long-term disability insurance are designed to protect your income when you are unable due to a life event – regardless of how said event transpired. Some may argue that workers’ compensation will cover their financial needs in the event of having to miss work. However, worker’s compensation only covers work-related injuries (i.e. injuries caused on the job).

While both short-term and long-term disability insurance will protect your income in the event of illness or injury, it’s important to understand the difference between the two policies and what they cover. In its simplest form, short-term disability insurance provides individuals with complementary coverage in the event that they are unable to work for a short period of time. Long-term disability insurance lasts longer and can prove to be more cost-effective than short-term insurance.

How Long do Short-term and Long-term Disability Benefits Last?

Perhaps one of the most obvious differences between short and long-term disability coverage is the length of time the benefits last. The period an individual can collect disability benefits is called a ‘benefit period.’

As their names indicate, it’s obvious one policy lasts longer than the other, but what specifically do “short-term” and “long-term” mean?

Short-term disability (STD) insurance policies are designed to supplement personal income in the event of an injury or illness. Depending on your local and federal laws, short-term disability benefits typically last between two to three weeks.

Some common life events covered by STD may include:

A disabling injury.

Prolonged sickness.

The birth of a child.

Long-term disability (LTD) insurance policies are designed to protect personal income in the event of a life-altering, long-term illness or injury. Long-term disability is generally a condition lasting at least six months. However, depending on the circumstances, individuals can apply for a benefit period lasting from six months, one year to five, 10 years, or retirement age.

Some common life events covered by STD may include:

Musculoskeletal or connective tissue disorders, to include back pain, osteoarthritis, etc.

Cancer

Accidental injuries

Cardiovascular and circulatory disorders, such as a heart attack, coronary artery disease, a stroke, etc.

Behavioral health disorders.

While neither policy covers 100% of a policy holders income, STD covers up to 80% of gross monthly income, and LTD covers up to 60% of gross monthly income.

When do Benefits Start?

Perhaps as important as how long various disability benefits last, it’s important to know how long before these benefits can begin – known as the elimination period (i.e., waiting period).

While the exact elimination periods depend on your local and federal guidelines, the elimination period for STD insurance is typically under 14 days. LTD policy elimination periods can range from 30 days to two years. However, the average waiting period is around 90 days. Essentially, the longer the elimination period, the longer you cannot access your policy benefits, and the cheaper the policy.

Due to the potentially lengthy elimination period associated with short-term disability insurance, individuals benefit from holding both policies, as individuals can collect on STD while you wait for your LTD elimination period to end.

How Much does Disability Insurance Cost?

There are many factors that impact the cost of both short and long-term disability insurance coverage. In addition to the length of the benefit period, the length of the elimination period, and coverage amount, other determining factors might include:

Age

Health

Occupation

Location

Additional features

Generally, STD and LTD policyholders can expect to pay between 1% to 3% of their annual salary for a disability insurance policy. While this may seem like a great deal to pay in the event of a life-altering illness or injury, as with all insurance – it’s better safe than sorry. Additionally, employer-sponsored disability insurance is often offered as an employee incentive, where a portion or all of the premium cost is covered by an individual’s employer.

Who Would Benefit from Disability Insurance Coverage?

Essentially anyone who works would benefit from both short-term and long-term disability coverage. At the very least, short-term disability insurance should supplement long-term disability insurance. In the event, an illness or injury keeps you from working, the former would provide income protection until the latter kicks in.

Hospitality workers

Healthcare workers

Construction workers

Small Business Owners

Entrepreneurs

And more

Petra Solutions

Whether you are an individual looking to secure your personal finances or an employer looking to offer greater employee incentives, both short-term and long-term disability coverage will provide supplemental income in the event of an unexpected life event, to include illness and injury.

At Petra, we can help you find the policy that meet your lifestyle and your personal needs. Contact a member of our team today to learn more.